Rathbun: 2012 has got to be better!

I hesitate to prognosticate about 2012 if only for the simple reason that those in power are so out of touch that I can’t predict the behavior of irrationality. That being said, I think that there are several things that we can predict with certain level of confidence … so here goes:

The situation in the European Union will only worsen. The central banks are playing a shell game now and eventually the game is up. In 2012, at least one and maybe more countries will leave the EU either literally or figuratively. Greece has pretty much left already but will probably make it formal later in the year.

The GDP of the United States will be virtually nonexistent for the year. It is almost impossible to have economic growth in an environment where so much money is allocated solely to interest on the national debt.

Speaking of national debt, it will be raised a couple of times this year and it will be done very quietly given it is an election year and we don’t want President Obama to look bad.

Any increase in the national debt will be deemed Bush’s fault and both parties will let that be the story since neither wants to take responsibility for reducing it.

The Federal Reserve will continue to “print” money by the truckload and may be forced to issue debt in a foreign currency.

In order for the government to try and maintain its power and control you will see a greater erosion of our rights and liberty in the name of trying to fix the economy. History has shown us that police states, fictitious enemies, a total loss of privacy, capital controls, higher taxes, etc. will all become the normal course of business.

More and more human and financial capital will migrate away from these situations and land where they are appreciated and allowed to develop. This will eventually force the entire system to reset and eventually develop properly (Read “Atlas Shrugged”).

Changes will take place rather gradually at first and will then accelerate very quickly, and cause radical changes in the pace of decay. History is full of examples of societies that have gone down this path. Rome to the Soviet Union have experienced this decline and what happens is always the same, human and financial capital leave and don’t come back for a long time.

Most recently, Europe has been going through these changes. Look at the speed of decay — for several months all we talked about was Greece, then eventually we started talking about Portugal, Italy, Ireland, Greece and Spain — then we reached a point where we were within hours of a total monetary collapse. Now almost every day something happens in the world that is reported as being a tipping point and an irreversible situation that needs the producers to sacrifice more and more.

So, with all of this, one might ask how is it that I am slightly optimistic regarding 2012?

I have often said there is nothing I can do about the collective stupidity of government other than figure out how to exploit it to my advantage. The corollary to this is that you can always count on stupid people and organizations to do stupid things.

As long as I know what they are going to do, I can take advantage of it.

As the situation in Europe gets worse, I can count on the central bankers and the governments to do exactly the wrong thing so I can invest accordingly. I can and will short the euro, I will not buy their bonds, and I will watch where the human and financial capital goes and follow it.

The same goes for the United States, as the debt keeps going up along with taxes and increased regulations, I will simply follow the money. There will be economies around the globe that will benefit and that is where I will be. Many American companies are already following this same strategy and we will invest with them.

Inflation will start to rear its ugly head and I will look to counteract this with various sectors that benefit: Energy, agriculture and transportation to name a few. Also, precious metals of course, various currencies, and base metals.

To fully take advantage of the economic shift that we are in and preserve your capital, you need to be dynamic with your strategies. Buy and hold simply will not work. In 2012 we will need to be very attentive to the movement of the economy to survive and thrive. This is why I am optimistic for 2012.

Gary L. Rathbun is the president and CEO of Private Wealth Consultants. He can be heard everyday at 4:06 p.m. on After the Bell with Brian Wilson and the Afternoon Drive, and every Wednesday and Thursday evening at 6 p.m. on Eye on Your Money both on 1370 WSPD. He can be reached at (419) 842-0334 or email him at garyrathbun@privatewealthconsultants.com.

Treece: Greece’s financial Achilles’ heel

The financial difficulties facing Greece have been very well documented during the past few months, and until recently it appeared that the powers that be were preparing to bail out the country, which has been plagued with riots.

But it is now coming to light that the prospects of a bailout are quickly fading, at least in part because such a bailout was contingent on concessions from Greece’s union-organized work force. It seems that those concessions will not be made, and hence the bailout will not occur.

To show the world just how convoluted a financial situation Europe faces, the The New York Times recently published a chart constructed by Bill Marsh that displays Europe’s so-called “Web of Debt.”

While this map certainly shows just how confusing the situation has become across the pond, both its architect and its believers are operating under a very dangerous assumption: that the debt will be paid. As we’ve mentioned before, all too often people forget that governments do in fact go broke.

For evidence, look at Russia, Argentina (twice), the City of New York and California. Add to that a good deal of near-misses, like in the early 1990s when Mexico had to devalue the peso in order to keep from going broke. In fact, between the mid-1980s and the mid-1990s there was a wave of debt defaults — excuse me: restructurings — among Latin American countries that almost sent CitiGroup under.

When it comes to debt, people and corporations have only two options: either pay it off or default. Since they own the printing presses, governments have the convenient third option of inflating their debt away (paying it off with currency hot off the presses, and subsequently worth less).

Unfortunately for those of us subject to the whims of our governments, even when our fearless leaders do decide to pay debt off, they very rarely do so responsibly. More often they incorporate their inflation option to some degree.

Why, you may ask, would they do such a thing? The better question is why not. The answer, dear Watson, is that their creditors have no recourse, no way of stopping them. The holders of government debt, when that debt goes sour, have only two options. They can either take what the issuer offers them or they can walk away.

The basic concept that needs to be understood from all this is that governments do not act ethically or responsibly. They have nothing to do with responsibility, much less intelligence, but with feelings. Elections are predicated on pain, and who has caused the least in voters’ short memories. Therefore, governments choose the path of least resistance — and least pain.

Consider the following: Recently, minutes that were released from a 2004 meeting of the Federal Reserve board of directors (such minutes are not released for several years after meetings occur) reveal that then-Chairman of the Fed Board Alan Greenspan was actually aware of a possible bubble forming in the real estate sector all the way back in 2004, more than two years before the real estate market crashed!

In fact, at this meeting in 2004, several of his subordinates, including Jack Guynn (then-president of Federal Reserve Bank of Atlanta) and Cathy Minehan (then-president of Federal Reserve Bank of Boston) expressed significant concern about “overbuilding” that was occurring at the time.

As history tells us, Greenspan obviously ignored this advice and allowed the real estate market to continue its trend of increasing prices and overbuilding.

We all see how that turned out.

Mark my words, events in Greece will not play out in totally dissimilar fashion. Remember this little invention called the Eurozone is little more than a decade-old experiment, in which almost every member country regrets participating.

It will come as no surprise to us if the Eurozone collapses in the next five years.

Likewise, the offshore trend that has lasted nearly 20 years is just about to end, and like dot-com and tech stocks before it, investors will soon find that off-shoring is not the wave of the future. After years of investors hearing that they need to be putting money in gold and foreign securities — far away from U.S. dollars — the party is quickly coming to an end, and the last one to leave gets to pay the tab.

Dock David Treece is a stockbroker licensed with FINRA. He works for Treece Financial Services Corp (www.TreeceInvestments.com) and also serves as editor of the financial news site Green Faucet (www.GreenFaucet.com) and as a business commentator for Toledo Free Press. The above information is the express opinion of Dock David Treece and should not be construed as investment advice or used without outside verification.

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Travel

Letter from Greece: Tourism thrives but the work is tiring

ATHENS —It’s been a long morning, and Despina Savvidou is dreaming about an afternoon nap.

That’s not surprising. She’s nearing the end of a three-hour stint guiding a group of five tourists around central Athens and has arrived at the city’s Acropolis, an arduous 150-foot climb. The place is packed to the point where there’s little room to maneuver on the rocky steps leading to the ruins of the marble edifice where Athenians have been gathering since 500 BC.

Cruise ship passengers, Greeks out for a Sunday stroll and taking advantage of rare free admission, and sunny, pleasant weather are responsible for the unusually large crowd.

Despina Savvidou amid a crush of tourists and locals at the Acropolis of Athens.

Savvidou, 58, a straight-talking woman who mixes insightful historical observations with biting social commentary, is annoyed.

“I hate the cruise ships,” she says with a look of great disdain on her otherwise friendly face.

The irony, of course, is that the ships bring tourists and tourism is her livelihood.

Not that type of tourist, Savvidou is quick to point out.

Nevertheless, if the cruise ships stopped coming, Greece would be in trouble. About 16 million tourists visit the country annually. Half of them stop in Athens, usually on their way to one or more of the country’s 170 inhabited islands in the Aegean and Ionian seas. In a country of 12 million people, 700,000 of them make their living off visitors, and tourism accounts for 15 percent of the country’s GNP. As Greece slides toward a recession every bit as serious as the one that has placed a stranglehold on the United States, a healthy tourism industry is a necessity the Greeks can’t afford to have sag. At the moment, that is not the case: The restaurants are full, the cruise ships keep coming, and the islands are bustling with guests, although the number of American visitors has dwindled for obvious reasons.

Savvidou is one of the success stories. For years, she toiled as a tour guide for German visitors. She loved the work, but was not thrilled with her clientele.

“I got fed up,” she says. “I speak very good German, but they never talked to me. And they never smiled. They weren’t friendly, like the Americans.”

So she quit her job and opened Athens Walking Tours in 2005. Her first year, she had 110 customers. Some of them wrote positive reviews to a website called TripAdvisor. A couple of American reporters wrote favorable stories. The next thing you knew, Savvidou was seeking help to keep up with the crush of customers. This year, as the 8-month tourism season draws to a close in two weeks, around 10,000 visitors will have signed on for a walking tour at $50 a person, says Savvidou, who appears incredulous when she repeats the numbers. She employs 10 full-time guides. Since Savvidou hates desk work and would rather be walking the streets with her customers, her husband, Yiannis, has taken over office duties. He has been joined by their son, Aris.

“Really, it’s amazing how this has happened. I’m very happy,” says Savvidou, who is looking forward to winter, when she can take a vacation herself.

At the other end of the spectrum is Yergos, a restaurant hawker in the city’s busy Plaka – the city’s oldest district, located directly below the Acropolis. It’s a neighborhood filled with restaurants, cafes and tourist shops amid a labyrinth of narrow, pedestrian-only streets. Yergos’s job is to get people walking by to eat at his restaurant, where in warm weather most of the customers dine outside.

Each day, the 40ish Yergos starts working at 11 a.m. Eleven hours later, he’s still hawking, although the spring in his step has slowed and the intensity of his pitch has waned considerably. For the effort, Yergos is paid $120, presumably cash [which most Greeks prefer]. More than once during a brief conversation, Yergos repeats how much he makes.

“In Athens, this is very good money,” he says.

It’s money he needs because the cost of living in Athens, where five million people reside mostly in high-rise tenements, is high and quickly escalating. A studio the size of a walk-in closet starts at $550 a month, without utilities or appliances. One or two-bedroom apartments in decent neighborhoods range from $1,200 to $2,400 a month.

So, when Yergos is asked when his day off is, he laughs. “I have no days off. OK, maybe one day a month. But, then, I don’t get paid.”

So, doing the math, that’s 77-hour work weeks. In summer, Athens temperatures often reach the mid-90s or higher. In winter, temperatures plummet, the wind blows, snow is possible, and customers, far fewer, move inside. Not Yergos, the hawker. He prefers the summer.

“In the winter I wear two or three layers of clothes, but I’m still cold. What can you do? This is my job, and the money is good.”

The story is similar in Santorini, the most famous of the country’s islands, an 8-hour ferry ride from Athens. The banana-shaped island, formed from volcanic rock, features several villages consisting of all-white homes and blue-domed churches perched on a cliff top that drops 450 feet straight down to one of the most beautiful, blue water harbors in the world, and a number of unique black, sandy beaches. As a result, five million tourists visit annually. But there are only 7,000 residents to take care of them.

Among them are Dimitris and Nikoleta Vazeou, owners of Aspa Villas, a seven-room boutique hotel in Oia, the most beautiful – and pricey – Santorini village. Nikoleta, 36, remembers when her mother used to rent rooms to backpacking students in the ‘70s for less than a dollar a night. In those days, many of the Greek islanders had fled to Athens for work because the prospect of making a living in the islands was so bleak.

Tourism changed all of that. As visitors arrived by the millions, the residents returned. Some of them, such as Oia citizens who owned property facing the harbor, quickly became wealthy. Others, like the Vazeous, seized upon the opportunity to make a good living and offer their children a better life.

Three years ago they bought their hotel for $750,000, an unthinkable price a decade or so ago. Each month, they make a $6,000 mortgage payment to the bank. Their annual taxes total 37 percent. And, each year they spend thousands improving their hotel to compete with nearby venues that charge two or three times as much [$250-$350 a night] because of superior locations. Still, the hotel has remained full most of this season with budget-minded tourists, and Dimitris and Nikoleta are confident they will succeed.

“I am very happy with the way things are going,” says Nikoleta, a charming and thoughtful host.

The problem is this: Nikoleta has two sons, 11 and 3, who live in the family home 30 minutes away, who require her attention. But she spends between eight and 10 hours a day at the hotel, where Dimitris, 46, fills in when she’s at home. The Santorini season begins in early March and runs through mid-November, so Nikoleta and Dimitris have not had a day off in almost nine months.

“I’m very tired and am anxious for the season to end,” Nikoleta admits.

Recently, she was enjoying a rare dinner with visitors as one of Santorini’s famous sunsets was about to commence. Her back was to the sun. “They told me I was missing the sunset. I told them, ‘I’ve seen it all my life.’”

As she recounted the story, Nikoleta realized how ludicrous her comment must have seemed. She lives in what for many would be paradise, but has no time – or thought – to appreciate its beauty.

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